Section 280F Basics -- Qualified Business Use

In order to be able to claim bonus depreciation or MACRS accelerated depreciation for an aircraft, more than 50% of the use of the aircraft must qualify as qualified business use under Internal Revenue Code 280F. Furthermore, even if the 50% qualified business use test is met in the year of aircraft acquisition so that bonus depreciation may be claimed and accelerated depreciation methods used, if the 50% qualified buisness use test is not met in subsequent years, the aircraft must change to straight line depreciation under the alternative depreciation system and recapture (include in gross income) some of the depreciation previously claimed. IRC § 280F(b)

The Section 280F test is based solely on business use. Investment use does not count. However, investment use is only ignored for testing qualified business use. If it is determined that the 50% qualified business use test is satisfied for a given tax year, both business and investment use may be used to determine what portion of the expenses of the aircraft may be deducted. See Treas. Reg. ______.

Section 274(a) disallows a deduction for certain expenses for entertainment, amusement, or recreation activities, or for an entertainment facility. Under section 274, no deduction otherwise allowable under chapter 1 is allowed for expenses for the use of a taxpayer-provided aircraft for entertainment The regulations provide only limited guidance on what "entertainment", "amusement" or "recreation" means for this purpose. The regulations provide that the term "entertainment means any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips, including such activity relating solely to the taxpayer or the taxpayer's family." See Treas. Reg. §1.274-2(b)(1).

At one time, a distinction was drawn between business entertainment (that could be deducted) and personal entertainment (which could not be deducted). However, after passage of the Tax Cuts and Jobs Act in 2017, all entertainment expenses became non-deductible.

The Regulations permit the computation of the disallowance percentages for entertainmetn use under 4 methods: Flight by flight hours, flight by flight miles, occupied seat miles and occupied set hours. These methods are further adjusted to provide that empty or deadhead flights are characterized based on the flight to which they are associated. In addition, special rules also exist for multi-leg flights that have business and entertainment legs.

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